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Lawyer calls for Teranet changes to prevent fraud

An Ontario lawyer is calling on the province to do more to prevent real estate fraud by changing the regulations governing the electronic land registry system to restrict access to non-lawyers.

‘Lawyers have much to lose; non-lawyers not nearly as much,’ says Shayle Rothman.

In a recent letter addressed to Teranet and the Law Society of Upper Canada among other parties, Shayle Rothman of Real Estate Lawyers.ca LLP referred to inquiries he made in 2013 to Teranet about the “obvious and reasonably foreseeable fraud potential” of its practice of allowing non-lawyers to register and discharge mortgages. Since then, Rothman wrote, “no relevant changes to your system have been made.”

Under the current system, Rothman says, lawyers can appoint delegates — normally law clerks or administrative staff — to register or discharge mortgages for them.

“When you come to your lawyer, you automatically, I’d presume, would assume that your lawyer is the only one who can register your mortgage and discharge your mortgage and register you as the owner of the property, and not [that] some receptionist who had access would be able to discharge your mortgage. You’re saying that just makes common sense. So here, that’s not the case.”

Though he concedes the numbers are hard to come by as victims of fraud aren’t likely to want to publicize it, Rothman suspects the amount of fraud that’s occurring because non-lawyers are able to register and discharge mortgages is huge.

“I’m sure if either of us knew the real number, our jaws would drop,” he says. “We’re talking huge sums of money. . . . It’s a huge risk.”

In one recent Superior Court case, a Brampton, Ont., couple, Dhanraj and Sumatie Lowtan, got approval for a loan of $280,801.95. A little less than a year later, a numbered company discharged the loan without the knowledge of the lender, Computershare Trust Co. of Canada. Having been discharged from this loan, the Brampton couple was then able to secure more loans, which they eventually defaulted on, from other lenders. “The registration of the fraudulent discharge was caused by the Lowtans and relied on by them as part of a scheme to obtain additional financing from subsequent chargees which financing would not otherwise have been available to them,” wrote the judge in CIBC Mortgages Inc. v. Computershare Trust Co. of Canada.

“So this numbered company has a Teraview stick, and they have credentials to go into Teraview,” says Rothman. “Because the system is not locked for anything other than ownership transfers, they were able to discharge a mortgage fraudulently. It was super easy for them to do.”

Rothman allows that both lawyers and non-lawyers can engage in fraud. But limiting the ability to register or discharge mortgages to lawyers would minimize the risk of fraud, he says, because lawyers, unlike law clerks and others, are subject to regulation by the law society and have a real estate practice endorsement from LawPRO. Real estate lawyers’ insurance, he says, also adds a layer of protection for the public and lenders.

“Lawyers have much to lose; non-lawyers not nearly as much,” he adds. His own firm, he says, allows only lawyers to register and discharge mortgages. Otherwise, he says, “One of my clerks could easily come in [to Teraview], commit a fraud, and register a mortgage on your property that you don’t owe a penny on. They could say that you owe them 500 grand. And now you have to spend legal fees and everything else to prove that’s not your mortgage.”

When he recently approached Teranet about his concerns, Rothman says, the company said it couldn’t unilaterally make such a change without direction from the province.

So he has since approached Ontario’s Ministry of Government and Consumer Services about the matter.

Asked to comment on Rothman’s allegations that the current rules leave Teraview open to fraudulent use, a spokeswoman for the Ministry of Government and Consumer Services didn’t respond directly. “Title integrity is of paramount concern in Ontario’s land registration system,” said Anne-Marie Flanagan. “As such, we take fraud very seriously.”

In 2006, the province passed legislation allowing only lawyers to sign land transfers “after extensive input from the real estate bar, and other members of the real estate industry,” she noted.

“While we cannot comment on the Computershare case, which we understand is under appeal, we can confirm that the land registration system will continue to consider additional options that will be effective to prevent title fraud.”

Rothman isn’t the only real estate lawyer concerned about the current regulations governing Teraview. Andrea White, a partner at Shibley Righton LLP, says the current system allows certain people not even associated with a law firm, such as title searchers, access to Teraview.

“It’s very unnerving for a lawyer because when you see a discharge statement and someone inserts your name, you have no way of knowing if they were authorized,” she says.

The new rules the province introduced in 2006 “substantially stemmed the issue,” she adds. And if Ontario adopts Rothman’s suggestions, mortgage fraud should continue to decline, she suggests.

White says the province may find itself under mounting calls to act. “If the banks and people are finding that this is going to be a new way of fraudulently dealing with things, I’m assuming there will be a fair amount of pressure on them — by the banks in particular — to make changes.”

Christian

Tarzan Isaac2016-02-28 03:42

0

you said:"...But limiting the ability to register or discharge mortgages to lawyers would minimize the risk of fraud..."-right, because lawyers NEVER lie, cheat, steal, act dishonorably or shield (protect) each other when charged with crimes or misconduct, right. lol!!! It's quite telling that you (a lawyer) want to exclude anybody other than lawyers from filing documents into what is supposed to be open to the public.Also the clerks cannot LAWFULLY gate-keep.This amounts to interfering with the right to access the courts and justice. There has long been a remedy to challenge fraudulent filings. Let's see what Jesus had to say about lawyers. (KJV) Luke 11:46 And he said, Woe unto you also, ye lawyers! for ye lade men with burdens grievous to be borne, and ye yourselves touch not the burdens with one of your fingers. Luke 11:52 Woe unto you, lawyers! for ye have taken away the key of knowledge: ye entered not in yourselves, and them that were entering in ye hindered.

I do not have a view one way or the other whether the registration of mortgage transactions should be restricted to lawyers. Nor does it surprise me that lawyers tend to think that only lawyers should do this work.

What I was questioning was that there is a 'huge' amount of fraud out there because non-lawyers get to do it. If so, why are we not hearing from the people losing money to fraudsters? Where is the litigation, as there was in the early 2000s on title fraud until the system got reformed?

It may be there, but the article mentioned one person's allegation and one case - admittedly a serious one. In short, I think the tone of the article was overwrought based on the evidence it contained.

I do not understand John G's position, is he advocating for non-lawyers to be able to discharge and register mortgages? Every single lawyer I have spoken to on this topic agrees with Mr. Rothman's position, i.e. only lawyers should be able to register and discharge mortgages, just like transfers. Is John G advocating that the Teranet system be rolled back so that non-lawyers can also sign transfers without a lawyer? I certainly hope such is not the John G's position. I believe restricting access to the Teraview system greatly enhances fraud protection. I don't understand John G's convenience argument, is he stating that his wholly unsubstantiated belief in non-lawyers adding greater convenience to the mortgage discharge and registration process is a greater consideration than the prevention of fraud, fraud which case law demonstrates as being real and actual, not speculative. Why is a non-lawyer more convenient than a lawyer in any event?

This article builds a lot of speculation on a single reported case. Mr. Rotherman "suspects" that the amount of mortgage fraud is "huge" without any evidence at all, beyond that it might be technically possible for non-lawyers to carry it out.

If lenders or homeowners or both are being subjected to "huge" amounts of fraud, why are there no other complaints than Mr. Rothman's? Why is the legal and financial press not reporting the nasty instances, or the prosecutions, or the civil suits?

Is there another side to this story, e.g. the convenience to all parties when some non-lawyers can do what they appear to be allowed to do, and does that convenience outweigh the speculative risk of fraud? Why is Mr. Rothman the only person on this campaign?

Dear John G, I wish you would have read the entire short article. As Ms. White, another lawyer quoted in the article agrees with Mr. Rothman. I too am a lawyer and completely agree with Mr. Rothman, he is hardly alone in his analysis. The fact that non-lawyers can register and discharge mortgages without any lawyer oversight is absurd. Why does Teraview require lawyer oversight of non-lawyers for transfers but not discharges and registrations? The latter does not follow any logic. In fact, I believe lenders and others that suffer loss from the current Teranet system could attract the liability of the Ontario crown for their inaction over the course of years to fix their broken fraud facilitating system they have repeatedly been made aware of easily fixing and not doing anything essentially the Ontario Crown is leaving Lenders and others unnecessarily exposed to a fraud risk for discharges and registrations which they do not for transfers. Hopefully The Ontario Crown widens up

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